The taxation of works of art

1.- INTRODUCTION.

We will start the study defining what we understand for work of art. Thus, in the definition provided by ABC, the production made by a plastic artist, which is the result of his creativity and imagination and which he expresses, whether a concept or a sentimental manifestation or emotional. In other words, the work of art is a creation in which the intention of the artist is fully embodied and evidenced, therefore, it is in itself a singular element based 100% on intellectual property, which needs special treatment in matters tax.

Therefore, between taxation and the art market there is a relationship of wide diversity, since each body that participates in this market has a different fiscal weight.

The sale of works of art can collect a transnational component when buyer and seller are of different nationality and subject to different personal law. The conclusion of the sale can take place abroad: on the territory of the European Union or on non-EU territory. So the tax regime will be different.

In the event of the sale, legal relationships subject to a particular taxation may occur, in so far as the transaction is involved by the artist himself, or the purchase is made from one or more intermediaries, such as can be: dealers, art galleries, commissioners, auctions.

This study is not intended to be a manual of the complete taxation of the art market, so the next lines will consider the direct and indirect taxation that taxes the transactions between sales made by entrepreneurs and, above all, by particular.

Although, as we have indicated, it is extremely difficult to understand how taxation affects in each case, since taxation is very diverse according to the idiosyncrasies of the work. We will advance, that the tax that most affects the art market is the Value Tax Added (hereafter, VAT).

In sum, indirect taxes have a greater significance in art, although we will also treat personal income taxes (hereafter PIT) and corporation tax (hereafter, CIT), in addition of the other taxes that affect the purchase and sale of works of art.

With regard to VAT, it has had several ups and downs in the percentage to be applied, ranging from 18, 21 and 10 per cent. These taxes as we will see in the studio is a drag on the Art Galleries, which put them in a difficult position, and which – in my opinion – lashes out the Art Market, by losing competitiveness with countries around us.

However, this is not the only reason why the Art Market does not take off in Spain, it is certainly much more complex and has nothing to do just with taxation. However, these reasons escape the study of this work.

Serve, to describe, our Art Market, the two quotes I indicate below.

According to the calculations of Clare Mac Andrew, author of the report The Spanish art market in 2017 “National sales accounted for less than 1% of the world total, up to 385 million euros in 2016”.

And, the TEAF Art Market Report,produced by Rachel Pownall, professor of art economics at Maastrich University, makes a more optimistic count”andraises turnover 600 million euros in 2016.

At the European level, the representation of Spain, is also much lower than markets such as France and the United Kingdom. Spain accounts for only 2% of total sales in Europe.

We will begin the study with the Wealth Tax (hereafter, WT), then VAT, then the Tax on Patrimonial Transfers and Documented Legal Acts applicable when two individuals are involved in the purchase and finally direct taxation. Direct taxation will vary depending on whether the seller is a natural person, or a legal person. In the case of a natural person, the Income Tax of the Natural Persons will be applied and we will differentiate, if it is an employer engaged in such activity or an individual. In the case of a legal entity, corporation tax will apply.

2.- INCOME TAX.

The Wealth Tax is a tax of a direct nature and personal nature that taxes the net assets of natural persons in the terms provided for in Law 19/1991, of 6 June, regulating this tax.

This tax, even if it is of a state nature, its performance is fully ceded to the Autonomous Communities, in accordance with Organic Law 8/1980 of 22 September and in accordance with the new funding model established in Law 22/2009, of 18 December.

Although its transitory character, the reality is that for the 2018 financial year it was extended through Law 6/2018, of July 3, of general state budgets, and for the financial year 2019 through Royal Decree Law 27/2018 of December 28.

2.1. WORKS OF ART FREE.

The Law includes in Article 4 the goods and duties exempt from the tax, which are:

One. The assets that are members of the Spanish Historical Heritage, registered in the General Register of Goods of Cultural Interest or in the General Inventory of Movable Property, as referred to in Law 16/1985, of June 25, of the Spanish Historical Heritage, as well as those included in the Second Additional Provision of that Law, provided that in the latter case they have been classified as Goods of Cultural Interest by the Ministry of Culture and registered in the corresponding Register. However, in the case of Archaeological Zones and Sites or Historical Sets, the exemption will not achieve whatever real estate located within the delimitation perimeter, but exclusively those with the following conditions:

• In Archaeological Zones, those included as an object of special protection in the instrument of urban planning referred to in Article 20 of Law 16/1985 of 25 June.
• In Sites or Historical Assemblies, those who are 50 years of age or older and are included in the Catalogue provided for in Article 86 of the Urban Planning Regulations as an object of comprehensive protection under the terms provided for in the Article 21 of Law 16/1985 of 25 June.

Two. The assets that are members of the Historical Heritage of the Autonomous Communities, which have been qualified and registered in accordance with the provisions of their regulatory rules.

Three. Objects of art and antiques whose value is less than the amounts that establish effects of those provided for in Article 26.4 of Law 16/1985, of June 25, of the Spanish Historical Heritage.

They shall also be exempted:

1. The objects of art and antiquities covered by Article 19, where they have been assigned by their owners in permanent deposit for a period of not less than three years to Museums or Cultural Institutions for public display and not for profit for public display.
2. The artists’ own work as long as it remains in the author’s heritage.

However, for the purposes of clarity, Section 19.2 of the Heritage Act points out to us that it is what is meant by objects of art and antiquities. Therefore, it is understood, as objects of art: paintings, sculptures, drawings, engravings, lithographs or other analogues, provided that in all cases they are original works;  movable, useful or ornamental goods, excluding art objects, which are more than one hundred years old and whose fundamental original characteristics would not have been altered by modifications or repairs made during the last hundred years.

2.2. NON-FREE WORKS OF ART: CALCULUS OF VALUE TO PATRIMONY EFFECTS.

In the previous section, we have pointed out in point three that certain goods are exempt, as long as they do not exceed the value estimated under article 26.4 of the Spanish Historical Heritage Law.

Consequently, the rule that develops the Spanish Historical Heritage Law is the one that includes these values and which we find in Royal Decree 111/1986, of January 10, of partial development of Law 16/1985, of June 25, of the Spanish Historical Heritage , so that antiques and works of art exceeding the following amounts shall not be exempt:

Pictorial and sculptural works less than 100 years old: 90,151.82

Pictorial works of a hundred or more years old: 60,121,21

Sculptural works, reliefs and low reliefs with a hundred years or more of age: 42,070.85

Collections of drawings, prints, books, documents and musical instruments: 42,070.85

Furniture: 42,070.85

Carpets, tapestries and historical fabrics: 30,050.61

Drawings, prints, printed books or manuscripts and unitary documents on any medium: 18,030,36

Historical lymedary unitmusical instruments: 9,015.18

Ethnographic objects: 2,404.05

Furthermore, in accordance with administrative doctrine, if the good covered by this exemption exceeds the limits indicated, the taxable amount shall be the total valuation of the good, the amounts indicated earlier for each of them.

2.3. PERICIAL RATERATION.

The Law itself includes the contradictory expert appraisal, which will be carried out by a Expert of the Administration when the proven value has not been carried out by experts. This contradictory expert appraisal refers to Law 53/2003 of 17 December, General Taxation (hereafter LGT) and applies to the following goods: jewellery, sumptuous skins and vehicles, vessels and aircraft; art objects and antiques; goods and rights of economic content (unless used to determine the market value, used vehicle share value tables approved by the Ministry of Finance for the purposes of the ITP and AJD and ISD, in effect on the accrual date tax).